Thursday, July 26, 2018

Chemical Activity Barometer Increased in July

by Bill McBride on 7/26/2018 02:35:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Continues to Signal Gains in U.S. Commercial and Industrial Activity

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), rose 0.1 percent in July on a three-month moving average (3MMA) basis, improving upon June and May performances which were essentially flat. The barometer is up 3.9 percent year-over-year (Y/Y/), a slower pace than of that earlier in the year. The unadjusted CAB also increased, notching a 0.2 percent gain, up from a 0.1 percent gain in June. July readings indicate a continued expansion of U.S. commercial and industrial activity well into the first quarter 2019.
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added
Chemical Activity Barometer Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

The year-over-year increase in the CAB has been solid over the last year, suggesting further gains in industrial production in 2018 and early 2019.